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Cross-border Mergers & Acquisitions

Merger / Acquistion
The cross border purchase or exchange of equity involving two or more companies

According to a KPMG study,

83% of all mergers and acquisitions (M&As) failed to produce any benefit for the shareholders and over half actually destroyed value.
Reason: the people and the cultural differences

Difficulties encountered in M&As are amplified in cross-cultural situations, when the companies involved are from two or more different countries.

JV in Asia and Western Countries


Basic Values
Western Individual Legal Confrontation Analytical Asian Group Trust Compromise Fluid

Management Style
Western Rationality Structured Directive Doing Asian Relationships Flexible Adaptive Understanding

JV in Asia and Western Countries


Action
Western Short term Control Conflict One product/service focused Asian Long term Human resource Collaborative Customer focused

JV in Asia and Western Countries


Organization
Western Formal Fragmented Hierarchical Competitive Asian Informal Generalist Integrated Cooperative

Issues and strategies


1: Preoccupation In Canada, individual preoccupation with "How is this all going to impact me?" weakens commitment to the job at hand. This, in turn, translates into people looking for work in other companies. Often a firm in the midst of transition loses some of its own talent - strengthening the competition. In countries where people identify largely with groups, people tend to look for support within their group. In France and Italy, people caught in the midst of a merger or acquisition often turn to unions. If unions cannot provide answers because they have been excluded from the negotiation process, they are likely to go on strike. These strikes may do much more damage to the organization than comparable Canadian strikes; for example, the strike by French railroad and subway workers in December 1995 resulted in the demise of the government.

There is the pervasive loss of productivity of those who remain. Studies indicate that line employees and managers at all levels lose a minimum of 15% of personal effectiveness as a result of rumors, misinformation, and worry andteams tend to break down and become less effective

The strategy: Acceleration. Speed the integration to reduce the uncertainty and anxiety. Delayed decisions to "ease the pain" only magnify and sustain the pain and prevent the company, the individuals and /or the groups from getting on with the work and their lives. In the case of international M&A's, ensure that both individual and collective concerns are addressed.

2. List-making As soon as the merger is announced and the first calls to action proclaimed, the reality surfaces. The list of actions is overwhelming. Personal and departmental needs drive the allocation of resources. Quickly, as the days build, there is a widening disconnect between the financial and market-based goals of the merger and real-time allocation of effort. Tolerance for uncertainty varies widely around the world and this variation can be troublesome in international M&As. For example, Mexicans tend to require more structure and definition of their role and responsibilities than do Canadians. When a Canadian corporation acquires a Mexican company, its Mexican employees are often looking for information and structure that is not forthcoming, because their new Canadian managers deem it unnecessary. The Mexican organization often grinds to a halt, since Mexican employees are unlikely to go and ask for the information they need, since this may be viewed in Mexico as questioning management's authority.

The strategy: Concentration. During the first initial days, focus and get everyone to focus on the 20% of the goals that yield 80% of the economic value. In the case of international M&As, the economic value of a foreign organization may not be where expected . For example, a Canadian company acquiring a company operating in a country where the government controls much of the economy may find that the value of its new acquisition lies more in the personal ties between its managers and high level government officials than in its quality of service.

3. Organizational Proliferation
In

Canadian organizations, many task forces, committees and integration teams are created to handle all the lists and to plan new lists. Integration structures and transition teams designed to be allinclusive and to represent a sign of "new partnership" will weigh heavily on an organization seeking to keep its eye on its customers and the market. More effort will be placed on temporary rules and reporting relationships than the work itself.

In the case of international M&As, this issue is compounded by the fact that organizational change is brought into companies in different ways in different countries. For example, in countries where the sense of hierarchy is much stronger than countries like Canada (like France and Mexico), change is brought about from the top and employees at all levels expect new directions from their managers. This may paralyze cross-cultural M&As, since top Canadian managers expect input from these teams and committees, while French members of these committees and teams expect direction from their managers.

The strategy: Accelerate, concentrate and adapt. Form small, agile, quick-acting teams, including people from both sides of the M&A, with a clear mission and empowered integration team managers with direct access to senior management and to their support. Transitions do not need to be demonstrations of democracy in action. Clear leadership and strong support is essential to these teams; without it, they often break down into sub-teams (one sub-team for each side of the M&A). This is particularly common in the cases, where language and cultural differences create significant communication issues.

4. Infrequent and irrelevant communication In many international M&As, the working languages of the two organizations involved are not the same. Communication can break down even when the employees of the foreign M&A target speak English. Consider the case of a Norwegian - American joint venture. Because Norwegians tend to be more relationship-oriented while Americans tend to focus on tasks, the parties face problem over when and how to bring the discussions to a conclusion. The Norwegians complained that they had not built up enough trust to negotiate final details and needed more time. The Americans responded that they could not waste valuable time on further meetings and that the matter should be settled by the legal team. Tension decreased when the teams realized that their goals were the same but their ways of achieving them were quite different; a deal was eventually struck.

The strategy: Accelerate, concentrate and adapt. Frequent communication, repeated at least 7 times through multiple avenues - print, voice mail, e-mail, meetings, and video. In times of stress, the "noise" of survival and uncertainty drowns out the message. Overcommunicate and remember that responsibility for a message being received lies with the sender as well as with the receiver. A PricewaterhouseCoopers survey of 124 mergers indicates that those firms that implemented effective communications strategies showed better results in customer focus, employee commitment and productivity than those firms that had a delayed communication strategy. In the international case, communication often requires translation as well as adaptation. Indeed, the best way to make a presentation and to reach an audience differs from country to country . The communication strategy needs to take communication style preferences into account, as in the Norwegian - American example

5. Triangulation Without clear lines of authority and clear understanding of where they fit in, employees and managers are caught in a web of conflicting objectives and old loyalties. This type of organizational and personal strangulation robs the new entity of the very energy it needs to overcome the losses in productivity. The tolerance for temporary organizational charts and decision-making processes depends on the countries involved in the merger or acquisition. In hierarchical countries, like the Philippines, both organizational chart and chain of command need to be clearly defined, more clearly than in USA, Canada. A Filipino employee reporting to two managers, as in a matrix organization, will likely be quickly overwhelmed. He / she interprets the situation as having to meet two complete sets of expectations and perform two separate jobs. For Filipinos, asking managers to discuss their conflicting requests would be viewed as insubordination.

The strategy: Concentrate and adapt.

Concentrate on substance rather than form, and focus on helping people adapt. Management needs to provide the information that people need to be comfortable with the new organization; This information depends on people's cultural backgrounds. In Canada, people need to know how they fit with the value drivers rather than short-lived organizational charts; such may not be the case in other countries.

6. The relatives: the relative forces of time and


space.

Time in a merger is accelerated and compressed

The concept of time is related to culture. While long-term in North America tends to mean three years, it means up to 30 years in Japan. Consequently, Japanese strategy discussions are likely to take into consideration events that Canadians consider irrelevant, since they are expected to take place beyond the Canadian planning horizon.

Space is also relative. In an increasingly virtual world, those not "connected" in the same space and time feel disconnected from the decisions and the center of the action. Irregular and incomplete communications at headquarters becomes a daunting challenge for those who live in different time zones, regions, countries and organizational units

The strategy: Adapt Adapt to the realities of change and transition Help guide and support employees through the endings that they need to come to terms with Provide temporary structures to enable people and departments to navigate between the old ways and the new. Actively manage the merger across time, space and organizations, keeping in mind the different concepts of time and space that may be at play. Create the appropriate communications tools and the accountabilities and standards that will enable the organization to better operate across time and space.

Assignment Discuss the examples of M&As in terms of cultural differences